One of the most common loan documentation types was stated income, which allowed borrowers (or their loan reps) to put any amount of monthly income they’d like in the box on the application.

This was all good and well in the eyes of pretty much everyone because it banked on home prices soaring ever higher, despite already chalking massive gains.

The idea, in short, was that it didn’t matter if the borrower was sound if the property was expected to surge in value.

At worse, the borrower could refinance again or sell (for a profit) if they couldn’t keep up with their mortgage payments. We all know how badly that ended…

Just a few short years later, the quality of mortgages has done a complete 180. The average credit score for newly originated loans is north of 700. Additionally, average LTVs have dropped, meaning borrowers have home equity in case something goes wrong.

If anything, LTVs are going to keep dropping as bidding wars force new homeowners to put more down in order to get their offers accepted.

At the same time, more and more borrowers are opting for long-term fixed-rate mortgages, and with mortgage rates are at or near record lows, it makes for a pretty solid bet (even Buffett backs it).

The low rates are good for the housing market because it means homes are more affordable in payment terms, and it also means many previously stuck with higher rates can refinance.